In volatile times protect wealth by staying the course

With the low oil price, Brexit, low interest rates, economic uncertainty in Japan, the US and China and political tensions elsewhere, how can I protect my wealth in these volatile times? BV, Dubai Expert 1: Tom Anderson, investment adviser, Killik Offshore A good start point is to maintain a well-diversified portfolio that covers the major […]

With the low oil price, Brexit, low interest rates, economic uncertainty in Japan, the US and China and political tensions elsewhere, how can I protect my wealth in these volatile times? BV, Dubai

Expert 1:

Tom Anderson, investment adviser, Killik Offshore

A good start point is to maintain a well-diversified portfolio that covers the major geographic markets (US, UK, Europe, Asia) as well as industry sectors (tech, health care, cybersecurity etc). Capital preservation can also be an objective, particularly as a short-term, tactical decision, but if you forgo opportunities for growth you may lose the opportunity for gains.

However, if you feel that markets are likely to drop, the most straightforward way to protect yourself is to sell something and hold the proceeds as cash. If you are lucky you can repurchase more cheaply later on. However, market timing is almost impossible. The sensible middle ground is to trust your well-diversified portfolio to roll through.

You may decide that you want to de-risk but don’t want to leave cash lying fallow. In which case you need to find a specialist asset manager who can navigate – or at least mitigate – whatever turbulence you might be concerned about.

To be comfortable with your fund, make sure you know the annual management fee because anything above 1 per cent is usually considered expensive.

Two ideas that might be of interest are given below:

• The Personal Assets Trust’s primary objective is to protect the value of shareholders’ funds over the long term and secondarily to increase it. It is currently very defensively placed, with major holdings in cash (20 per cent of the fund) and physical gold bullion (10 per cent). Ongoing charges are 0.9 per cent.

• Invesco Perpetual Balanced Risk Funds aim to achieve long-term capital growth with a low average volatility through exposure to three main asset classes: fixed income, equities and commodities. Ongoing charges are 0.75 per cent.

Expert 2:

Sam Instone, chief executive, AES International

The truth is that you protect your wealth now in exactly the same way as you should at any other time.

This means finding an organisation that you can really trust to act in your best interest and establishing the right financial foundations. In contrast to a bank, which operates in the interest of shareholders, I would suggest that an independent fiduciary is preferable, as they have a legal duty to act in your best interest.

Finding the right company is always better than trusting an outwardly trustworthy, charismatic saleperson who may be motivated by hidden commissions. The UAE is packed to the rafters with many of these salespeople who masquerade under a variety of adviser-like names that can easily catch the unsuspecting expatriate unawares. The best type of companies will most likely be fee based, and therefore conflict-free, highly regulated and advice based not product based.

The right type of organisation will help you establish the right bank accounts, acquire the best insurance policies, establish an emergency fund then create a financial plan specific to your needs.

In many cases, this will include investing money in highly diversified, low-cost index funds for the medium and long term. It never involves investing in “investment policies” or insurance-based contractual savings plans that lock you into expensive and inflexible products for years to come.

Active mutual fund managers are not worth the fees. A recent study showed 86 per cent of European active funds and 98.9 per cent of US-focused equity funds failed to beat their benchmark over 10 years.

As such, low-cost trackers have now attracted about US$7 trillion of investors’ money in developed markets and will inevitably change investment in the GCC in years to come.

Many people fail to realise the dire consequence of a moment’s inattention. Selecting a good organisation with a sound investment philosophy will protect you from short-term volatility and other horrible shocks.

Next question:

Having invested into equity and bond funds over the past two years I can no longer put money regularly into my savings plan. What should I do? AL, Dubai

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